How Do I Close a Month-End in NetSuite?
Jan 21, 2021 | By Michael Whitmire
Ask anyone who’s worked in corporate accounting what the worst part of the job is, and they will invariably say it’s the month-end close. We hear you. We’ve been there, and the good news is the close can be made better.
How Do You Do a Month-End Close?
Our accounting textbooks (remember those?) made the close sound so easy: close period income and expenses to Income Summary, and close Income Summary to Retained Earnings. Done.
But in the cloud ERP world, there’s a lot that needs to be done before those few closing entries can happen. Balance sheet accounts need to be reconciled. Bank reconciliations have to tie to balance on the closing date. Accruals need to be posted. Revenue recognition for the period has to be squared away. Fixed assets have to be updated. Journal entries for depreciation and amortization need to be calculated and posted. Intercompany transactions need to be eliminated. Deferred revenue has to be reclassified. Depending on your organization, you may have additional adjustments, allocations, and accruals to make.
Most accounting teams use some sort of month-end close checklist and have some sort of month-end close process. On one end of the spectrum are the controllers and CFOs who keep it all in their heads and use a lot of manual processes. That can work for a while, but as the accounting team grows, that process can become total chaos. Tribal knowledge abounds, and tasks can be easily overlooked.
On the other end of the spectrum are accounting teams that follow a well-thought-out and optimized process with interactive checklists, workflow tools, and who leverage all the automation they can. These teams are using everything NetSuite has built in plus a few additional tools like FloQast.
Wherever your team is in that spectrum, a comprehensive checklist that includes all the processes and assignments is a must in order to streamline the closing process. Ideally, your checklist should make it easy to swap tasks between team members to keep the process moving efficiently.
How Long Does a Month-End Close Take?
The good news is that thanks to technology, the close has been getting steadily faster according to Ventana Research. In 2014, 58% of companies surveyed took seven or more days to close, and 28% needed eleven days or more. Only 29% were closing within four days. But in their 2019 survey, only 49% needed seven or more days, and nearly half (46%) were closing in four days.
Those numbers are a bit faster than APQC found in 2018, where the median close of 2,300 organizations was 6.4 days. The top 25 percent in that survey were closing in 4.8 days or less, while the bottom 25% needed 10 or more days.
Closing faster sometimes means a tradeoff between speed and accuracy. Using estimates rather than exact calculations can shave hours or even days off the close. In many cases, those estimates are not materially different from the actuals. However, when it’s time to close the fiscal year, the actuals will need to be determined. That means that the year-end close will likely take at least an extra day or two.
What Is the NetSuite Financial Close Process?
Like many ERP packages, the NetSuite ERP has a formal closing process. NetSuite’s integrated Period Close Checklist includes all the steps that need to be completed before a period can be closed, but like most things in accounting, it’s not as simple as checking boxes on a to-do list.
To set the process in motion, you first go to Setup > Accounting > Manage Accounting Periods and select the period you want to close. That brings up the Period Close Checklist. NetSuite requires that these steps be checked off in a specific order. Depending on your organization and your organization’s business processes, you may find that completing them in a slightly different order works better. A month-end close template -- like the one found here -- can get you started on developing the best process for your organization.
Let’s go through those items one by one.
- Lock A/R. The first three items on this list -- Lock A/R, Lock A/P, and Lock All -- must be completed before any other step can be completed. Before you can lock accounts receivable, the sales and revenue numbers have to be finalized. This means all invoices must be issued and all calculations for revenue recognition must be complete.
- Lock A/P. Once all vendor invoices have been submitted to accounts payable for payment, A/P can be locked. If any material invoices are received after the processing deadline, most companies will accrue those payables with a journal entry to be reversed in the next period.
- Lock All. This step locks the general ledger. Before this can be done, the accounting team must record all recurring and standard journal entries. Once the GL is locked, no more entries can be recorded.
- Resolve Date/Period Mismatches. NetSuite allows periods to close with discrepancies between the date and the period, but this can cause reporting headaches down the line. Make sure that any mismatches are appropriate and intended.
- Review Negative Inventory. This usually indicates a process problem that must be fixed. Otherwise, cost of goods sold will be calculated as zero. Setting up a saved search to look for negative inventory items well before period end can save time at closing.
- Review Inventory Cost Accounting. This ensures that all inventory costs have been picked up. This is another area where a saved search can save you time at month-end.
- Review Inventory Activity. Abnormal inventory fluctuations may indicate a process issue. Saved searches can help you identify problems and resolve them before they blow up.
- Create Intercompany Adjustments. At this step, expenses are allocated across consolidated companies. The finance team should evaluate whether NetSuite should automatically set up Intercompany Adjustment Journals.
- Revalue Open Foreign Currency Balances. GAAP requires foreign currency balances to be revalued at the rate at the end of the period.
- Calculate Consolidated Exchange Rates. If you are in a NetSuite OneWorld environment with subsidiaries with different base currencies, NetSuite maintains a list of consolidated exchange rates.
- Eliminate Intercompany Transactions. On a consolidated basis, only transactions with the outside world should show up, so transactions between parents and subsidiaries must be eliminated.
- Close Period. Finally, when all of the above steps have been completed, the books can be closed. Once this is done, no one can make any changes to the general ledger.
How Do You Unlock a Period in Netsuite?
Even with the best financial team in place, occasionally something is overlooked, or your accountant recommends some adjusting entries. When a period is closed in NetSuite, no one can change transactions without unlocking that period. Only someone with Override Period Restrictions permissions can unlock a period.
To unlock a period, go to Setup > Accounting > Manage Accounting Periods and bring up the checklist for the period you want to reopen. After clicking on the green arrow on the Close line, click on the Reopen Period button. This brings up a box that requests a justification for reopening a closed period.
Because accounting happens in a sequence, when you reopen a period, NetSuite will require you to reopen any subsequent closed periods after that period, although everything will still be locked. To make changes, you’ll have to first unlock the items on the checklist that you need to edit. Depending on what you unlock, other items on that checklist will also be unlocked, as well as the subsequent periods.
Once you’ve made your changes, you’ll have to repeat the process to close the books for that period. Because re-closing the books for subsequent periods is tedious, NetSuite has a Quick Close process that allows you to close multiple periods at once. To use this functionality, go to the Manage Accounting Periods page and click Close Multiple Periods. Once you choose a period, NetSuite will close all periods before that period.
How Do I Change the Posting Period in NetSuite?
Resolving period/date mismatches is one of the closing checklist items that needs to be resolved. NetSuite has a functionality to disallow, warn or allow users to post transactions with a date outside of the current posting period. Mismatches may be appropriate in certain circumstances, but be aware that this can cause reporting problems. Financial reports run by date will be different from those run by period.
Locating and resolving these mismatches can be a tedious and time-consuming process, so a best practice is to create a saved search looking for these mismatches regularly so they can be resolved in real time. Fixing these mismatches may require opening a closed period, using the steps outlined above. Some mismatches can be resolved by other means, such as issuing a credit memo for an invoice from a closed period that was corrected in the current period.
As a best practice transactions that involve cash or inventory should never have date and period mismatches.
Getting to the month-end close quickly and accurately means the accounting team has more time to do the interesting work. Leveraging automation transforms the month-end close from a time-consuming and error-prone manual headache to an efficient and accurate process — one that delivers valuable financial statements to key stakeholders — means the accounting team can have a life beyond the close.